CASA MARIA PROEPERTIES P.LTD,MUMBAI vs. DCIT (OSD) II CEN RG 7, MUMBAI

Per RAJESH KUMAR, Accountant Member:

5. We have heard the rival submissions and perused the relevant record placed before us including the orders of authorities below and case law relied upon by the assessee in assessee‟s own case. We find that the AO made disallowance under section 14A read with rule 8D(2)(iii) which was reduced to Rs.6,19,625/- by the ld. CIT(A) by partly allowing the appeal of the assessee. We find that an identical issue has been decided by the Mumbai Bench of the Tribunal in assessee‟s own case (supra) in favour of the assessee. The operative part of the Tribunal order is reproduced below: “3. Before us, ld. Counsel for the assessee informed that identical issue was decided by the Tribunal in a related concern namely Capstan Trading Private Limited (vide for the Assessment Year 2010-11 dated 11.03.2015). In this regard he brought our attention to the ground which found similarly worded and informed that the facts are also identical with mutatis mutandis. Tracing the facts of the said case, the counsel demonstrated that the AO made disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) on account of administrative expenses and applied the rate of 0.5% of the average value of investment. However, he ignored the fact that the expenses actually incurred for earning the dividend income is less than what is disallowed by the AO. The CIT(A) confirmed the order of AO, ignoring the facts of the case.

6. Ld. DR for the Revenue relied heavily on the order of the CIT(A) / AO. We perused them and examined closely the said decision of the Tribunal in the case of Cape Trading Private Ltd. and find the expenses mentioned in para 6 of the said order are more or same. We compared the heads of accounts of the expenses of the administrative and other expenses and in comparison we find majority of expenses claimed by the assessee are more or less on same accounts, i.e., auditors remuneration, depreciation, legal and professional fees, business support fees etc. For example, on perusing the schedule “L” related to administrative expenses of M/s. Casa Maria Properties Private Limited, pg. no. 20 of the relevant, we find none of the accounts are prima facie directly identifiable as one meant for earning the exempt of income. Some of the expenses so claimed in the schedule related to other business expenses. Similar is the case with the other appeals under consideration as well. In such circumstances, we are of the view that the AO mechanically applied the provisions of Rule 8D(2)(iii) without examining the books of accounts of assessee and therefore, the addition is unsustainable in law. Thus, we are of the opinion that the discussion given by ITAT vide paragraph 9 of the order of the Tribunal in (supra) are considered relevant and significant. Accordingly, the said paragraph 7 is extracted as below: “From the details of the expenses, we find that the printing and stationery expenses and bank charges and commission are only two items which could have direct or proximate nexus with the investment and exempt income. Therefore, the disallowance u/s 144 r.w Rule 8D(2)(iii) cannot exceed to the allocable expenses incurred by the assessee for a composite activity resulting in taxable and exempt income. The working of disallowance under Rule 8D(2)(iii) by the Assessing Officer clearly shows that it exceeds not only the expenses debited and claimed by the assessee which could have a proximate nexus with the earning of exempt income but also to the total expenditure debited by the assessee in the P&L account under the head „administrative and other expenses‟. Therefore, it turns out to be contradictory to the actual facts and gives absurd results in complete disregard to the scheme of disallowance u/s 14A. Therefore, the provisions of Rule 8D(2)(iii) cannot be applied in the case of the assessee as it becomes unworkable and unrealistic. In the facts and circumstances of the case, we find that when the provisions of Rule 8D(2)(iii) becomes unworkable, then in the absence of any finding as well as any specific expenses debited to the P&L account which could have a direct or proximate nexus for earning the dividend income the disallowance made by the assessee suo motu is just and proper. Accordingly, we delete the disallowance made by the Assessing Officer.

7. Considering the above finding of the Tribunal, the decision of the Tribunal is applicable to the facts of the three appeals under consideration. Therefore, we are of the opinion, that the decisions of the CIT(A) in all these three cases are required to be reversed. Accordingly, the grounds raised

by the assessee in all the appeals are allowed.

8. In the result, all the three appeals by the three different assessee‟s are allowed.”